What can Philip Humber’s 2012 baseball season teach us about trading? That sometimes incredible short term success negatively affects longer term performance.
Humber threw the 21st perfect game in MLB History on April 21st. In his 3 starts after then he threw a combined 13.1 innings and gave up 20 earned runs. Last year, he had a 3.75 ERA in 163 innings, which is fantastic considering he threw in the American League (which has a DH). He finished 2012 with a 5-5 record with a 6.44 ERA in 102 innings.
So what has happened since his Perfect Game? His expectations rose too high too fast and he was getting frustrated with tiny failures that he would have shook off easily before. Now when he starts a game he has the small thought in the back of his mind that he can do it again, be perfect. Well statistically its almost impossible so he is setting himself up to fail. Soon as that first batter reaches base he loses composure as he develops a defeatist attitude and his mistakes pile up. Soon he is self destructing and his confidence is shot, quite shortly into the game.
Humber is a good pitcher with great stuff as evidenced by his season last year and his Perfect Game this year, and he will recover from his struggles this last season. But I would be willing to bet that his numbers for the year would be better if he had not thrown the Perfect Game and would have stayed happy throwing his normal 6 innings a game and allowing 2-3 runs.
I personally have experienced this effect in trading. I remember specifically buying a large amount of GS premarket on a gap down, only to have the stock reverse and run 10 points straight up. The move took about a total of 20 minutes and I had double my previous biggest day. Well I wanted to make that much money everyday! So I increased my risk and loser after loser until I gave back all my gains from the big trade and eventually my entire month. After that month my confidence was shot and I underperformed for another two months before I began getting back to the level I was before the big trade.
I remember a quote my dad told me growing up “Don’t let your emotions get too high during the good times or too low during the bad, keep a level head”. This is a fantastic way to approach trading and should guide your risk increment levels. Go slow and obviously don’t put yourself in a situation to blow up from one bad trade, but also don’t go for the huge trade because sometimes that trade working out is the worst thing for you.
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